StockMarketWire.com - Saga is urging the Government to encourage local authority pension funds to invest their assets in domestic infrastructure.

Saga director general Ros Altmann says UK pension funds have suffered serious damage from recent policies to stimulate growth - in particular low interest rates coupled with quantitative easing have led to significant increases in pension liabilities, which have been further compounded by the sharp rise in inflation in recent years.

As their liabilities grow, so do their deficits and funds have been trying to reduce risk by investing in bonds, but bonds cannot overcome the deficits.

She said: "Billions of pounds of pension fund assets are languishing in gilts or being invested in commodities, hedge funds and even infrastructure funds (many of which invest largely in overseas infrastructure rather than the UK), whereas investing directly in UK infrastructure projects could be a huge benefit to both the funds themselves and to the economy."

She adds: "Government needs to stimulate the economy but hasn't got money for big projects, while pension funds need long-term returns and have billions in assets.

"Given that Government policy itself has so badly damaged pensions, and given that public sector (local authority) pension funds are desperately in need of better returns, coupled with the fact that the Government needs to stimulate the economy and UK infrastructure urgently requires modernisation, it seems only sensible that we should harness the power of pension fund assets to boost long-term growth potential and boost pension fund returns.

"Local authority pension schemes are in serious deficit and, if they cannot return to full funding, the Government would have to bale them out anyway.

"Recent estimates suggest that there is a shortfall of around £60bn in local authority pension funds, with assets of around £140bn, so they clearly need extra returns to help bridge this gap.

"Therefore, it makes much more sense for the Government to help these pension funds invest in domestic infrastructure projects, which will generate potentially higher returns and better income than conventional assets such as gilts or other bonds while also helping long-term domestic economic growth.

"This could be a win-win for all."



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